What Is Life Insurance

A life insurance policy covers the policyholder for the life of that person.  The amount of coverage can range from $5,000 to more than a million.  Although, the amount of coverage generally ranges from $50,000 to $200,000.  There are numerous aspects of life insurance policies, each with its own purpose pending your needs.  I will briefly touch on the basics.


Ordinary Straight Life (Whole Life): This policy provides permanent protection from the date of policy issue to the date of the insured's death, or until the insured reaches 100.  Once the insured reaches 100 the policy is considered to have matured and the insured is issued a check for the full value of the policy.


Limited Pay Whole Life: Premiums are paid for a limited number of years, for example a "20-pay life," in which case premiums will be paid for 20 years  and the policy is paid up.  This can also be written to be paid up at a predetermined age, such as 65.  This does impact the premiums as they are accelerated.


Single Premium Whole Life: A one time only premium is paid and coverage is effective for the life of the policy holder, and similar to whole life, at 100 the policy is considered to have matured.


Adjustable Whole Life Policy: This allows the policy owner to make adjustments on the policy anniversary, without adding, dropping or exchanging policies.


Universal Life: This policy is interest sensitive and is used as an alternative to traditional whole life insurance.  These policies accrue cash value which allow financial flexibility for the policy owner.  After an initial premium is paid, the status of the policy depends on how often premiums are paid, how much is paid, and the amount of interest earned on the cash value.


Variable Life:  These are considered non-traditional, but it is a permanent life with many similar characteristics of Whole Life.  The primary difference between whole life and variable life is investments.  Whole life investments are conservative, whereas variable investments are with more risky investments, such as common stock and money market accounts. 



Why Is Life Insurance Important?


There are a number of reasons to take out a life insurance policy, with the primary reason being concern for the well-being of your loved ones after death; whether it's for our children, our grandchildren, for college, offering a financial foundation, etc.

For an explanation of term life, see our article What Is Term Life Insurance.